Wealth Tax: What It Is, How It Works and How to Calculate It

A wealth tax is basically a tax on the difference between a person's assets and liabilities.
Tina OremJun 16, 2021
What Is a Wealth Tax and How Does It Work?

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A wealth tax is a tax on net worth, which is generally the difference between someone's assets and liabilities. Governments might assess a wealth tax one time, sporadically or on a regular basis, depending on their laws and policies.

Here's how a wealth tax generally works and how it's different than an income tax.

A wealth tax is typically a tax on a net worth (the difference between someone's assets and liabilities). For example, if somebody has $500,000 of assets and $300,000 of debt, that person’s wealth (or net worth) is $200,000 and a 2% wealth tax would generate a $4,000 tax bill.

Wealth is the value of somebody's assets (cash; savings and investments; houses, cars and other property; insurance and pension plans, for example) minus the value of that person’s liabilities (mortgages, credit card debt or outstanding loans, for example). In other words, it’s what’s left over if you sold everything you owned and used the money to pay off every debt you have.

Income, on the other hand, is money received over a period of time, typically in return for a person’s time and expertise through work, or as interest or dividends. Paychecks are income. Money from renting out a property or dividend payments from a stock you own are other examples of income.

Conceptually, an income tax is not the same thing as a wealth tax. Income taxes are taxes on money received over a period of time, typically in return for a person’s time and expertise (through work) or as interest or dividends.

A wealth tax is typically a tax on a net worth. Use our calculator to find your net worth.

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